Greenspan: I saw loan dangers too late
WASHINGTON - Even the maestro didn't see it coming.
Former Federal Reserve chairman Alan Greenspan acknowledges he failed to recognize early on that an explosion of mortgages for people with questionable credit histories could pose a danger to the economy.
Greenspan said he was aware of subprime lending practices that give home buyers very low initial rates that are jacked up later, causing payment shock. But he said he didn't initially realize the harm they could do.
"I had no notion of how significant they had become until very late," he said in a CBS "60 Minutes" interview to be broadcast Sunday. "I really didn't get it until very late in 2005 and 2006."
An excerpt of the interview was released yesterday.
Greenspan's handling of the economy earned him monikers, including the maestro, the greatest central banker who ever lived, and second-most important person in Washington.
Yet some wonder whether the Greenspan Fed could have done more to prevent lax lending standards, bad loans, and other problems that have since come to light in the higher-risk subprime mortgage market.
A meltdown in that market has rocked Wall Street. Foreclosures and late payments have soared, and lenders have gone out of business. Nervous financial institutions have made it harder for borrowers to get financing.
Greenspan, who ran the central bank for more than 18 years - he was the second-longest serving chairman in history - left in 2006.
Some blamed Greenspan's interest rate policies for feeding the housing frenzy. The Fed from early 2001 to the summer of 2003 had slashed interest rates to their lowest level in decades. It was done to rescue the economy from the bursting of the stock market bubble, the 2001 recession, the terror attacks, and a wave of accounting scandals that shook Wall Street. Critics say the Fed kept rates too low for too long, encouraging a Wild West mentality in housing.